“Vacant Home Tax” is a little understood plan to help curb the housing crisis for a few years now. Toronto’s City Council introduced the Vacant Home Tax (VHT) in a bid to increase housing supply. How? By discouraging homeowners from leaving their properties vacant. The VHT went into force last year, making 2022 the first payable year the tax will be levied on vacant homes. Let’s dive into what exactly the Vacant Home Tax is, and how beneficial it will be to Toronto’s housing market.

What is a ‘vacant home’?

According to Toronto.ca, a property is vacant if it is not being used as the principal residence by:

  • The owner(s)
  • Any permitted occupant(s) by the owner
  • Tenants

The eligible vacancy period is a total of six months or more during the previous calendar year.

What is the goal of the Vacant Home Tax (VHT)?

The goal of the VHT is to increase the housing supply by discouraging owners from leaving their residential properties vacant. The tax is based on a property’s occupancy status for the previous year. If you choose to keep your property vacant, you will be subject to this tax. Revenue from the Vacant Home Tax allocates towards affordable housing initiatives, with a goal to discourage vacant rental units. Investors with units sitting empty will likely be among those paying the tax. Canadian renters are facing the tightest market since 2001, according to a report from the Canada Mortgage and Housing Corporation.

Residential property owners will receive a notice stating that they need to declare their occupancy status of their residential property(s) annually. If you do not reply prior to the end of February 2023, you will receive a fine. More jurisdictions seem to be following Toronto’s footsteps. The city of Hamilton is set to implement a VHT beginning in 2024. Peel is currently conducting public consultations to determine next steps of the implementation.

Properties may also be ‘vacant’ if an owner fails to make a declaration of occupancy status, as outlined in the bylaw.

How much is the Vacant Home Tax?

The Vacant Home Tax is 1% of the Current Value Assessment (CVA). It applies to Toronto homes deemed vacant for over six months in the previous year. The tax is based on the property’s occupancy status in the previous year.

Mandatory Declaration of Housing Status

To declare your current status, you will need your 21-digit assessment roll number and customer number. You can find this on your property tax bill or property tax account statement. As of February 2nd, close to 95% of homeowners submitted their VHT declaration. Once the declaration portal closes, the city will issue a VHT Notice of Assessment to those who declare their property vacant.

Homeowners can easily declare their home’s occupancy status by visiting the City of Toronto’s secure online portal. Those who do not have access to a computer can authorize someone to make the online or paper submission.

If you declare your residential property as vacant during the taxation year, you will need to pay the Vacant Home Tax. Only those owners that qualify for an eligible exemption are off the hook. If you do not qualify for an exemption, the city will send you a notice at the end of March showing your VHT amount owing. Your rate is one percent of your property’s Current Value Assessment. Payment will be due in three installments in May, June and July. Should you disagree, you can file a complaint through an online portal that will open in early April 2023.

What happens if you don’t declare your residency status?

If you fail to declare your residency status on top of being subject to the tax, you will:

  • Be taxed the full portion of the VHT.
  • Interest will be applied to your overdue tax amount at a rate of 1.25% on the first day after default. It will apply again each month as long as there are unpaid amounts.
  • Unpaid amounts will be added to your property taxes upon default of payment.
  • The city may also subject non-declaring owners to various fines for fraudulent or false declarations of residency.

Failure to meet the deadline can result in steep fines. They can range between $250 for failing to submit a declaration to $10,000 for making a false declaration.

Who is exempt from the tax?

The VHT applies to residential properties that are vacant for more than six months of the previous tax year. However, some vacant homes are exempt from the tax. Those situations include:

  • Death of a homeowner.
  • Principal resident is in a care facility like a hospital or long-term care home.
  • Court order preventing occupancy.
  • Owner lives outside the GTA, but requires vacant home for occupational residency for at least six months of the year.
  • Repairs and renovations.
  • Transfer of legal ownership.

The new tax does not apply to homeowners who go to a vacation home for part of the year or work abroad. People who rent out their property are also exempt. Additionally, repairs and renovations are also exempt, so long as city officials are of the opinion that the work is “being actively carried out without unnecessary delay.”

Upside of the Vacant Home Tax

Toronto is the latest Canadian jurisdiction to introduce a tax on vacant homes as the country struggles with a widespread housing shortage. Vancouver was the first to introduce a tax on vacant homes and said in November it generated $115.3 million for affordable housing initiatives and renter supports since 2017. Some data from Vancouver suggests the tax nudged some vacant homes back onto the market. The city reports that the number of vacant properties decreased by 36 percent between 2017 and 2021.

It remains to be seen how the tax will play out in Toronto, but experts believe it presents an opportunity to understand true number of vacant properties. It may potentially expand the housing supply amid a “crucial shortage” that’s also contributing to the steep cost of real estate. In Toronto, city staff estimate that the tax can bring in between $55 and $66 million annually, with that money being directed towards affordable housing initiatives.

Downside of the Vacant Home Tax

While Toronto residents whose properties sit vacant for more than half the year will have to pay a hefty tax, it is unclear whether the penalty will actually help boost housing supply in a city facing an affordability crisis. Supporters say that the new tax can convince some owners to list under-utilized properties for sale or place them on the rental market. But experts doubt the tax’s impact in the long run.

Jason Mercer, Chief Market Analyst for the Toronto Regional Real Estate Board, says “the jury’s still out” on the tax. “It will be important to track to see if we see more supply that can be attributed to the tax,” he says. If successful, the tax will eventually not generate any revenue as investors bring their units online. Mercer argues, “If we find there is a tonne of additional revenue going to the city’s coffers, the purpose of the tax won’t [be] fulfilled.”

Murtaza Haider, a real estate management professor at Toronto’s Ryerson University, questions how much of an impact the tax will actually have. “My estimate is that it will have some impact, but not much, primarily because not many homes are left vacant in a city that is seeing such high increases in rents and prices,” says Haider. He argues that those that are keeping their properties vacant must have a good reason not to take advantage of their asset. Therefore, they will probably qualify for one of the existing exemptions.

Experts believe more homes need to be built to ultimately address the lack of housing supply and “rapid price escalation” seen in the market.

Can the buyer of a home inherit the VHT?

Home buyers and sellers should pay close attention to their closing dates when it comes to the tax. As the seller, you must complete the tax declaration if the sale closes between January 1 and February 28. As the purchaser, you must submit a declaration the following year for any closing dates from March 1 until December 31. However, any unpaid taxes will become the purchaser’s responsibility and the Vacant Home Tax will form a lien on a property.

If you have questions about the Vacant Home Tax, please visit toronto.ca for more information. As always, for any questions regarding your home insurance and a vacant home, contact your isure broker today!

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